High Falls Brewing Company, LLC et al v. Boston Beer Corporation

Filing 42

DECISION AND ORDER granting in part and denying in part 24 Motion to Dismiss. Defendants second, third, and fourth counterclaims have been withdrawn by stipulation of the parties, and the application [#24]) to dismiss Defendants third and fourth counterclaims is therefore denied as moot. The application [#24] to dismiss Defendants First Counterclaim is granted. Signed by Hon. Charles J. Siragusa on 8/2/11. (KAP)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK

HIGH FALLS BREWING COMPANY, LLC,
HIGH FALLS OPERATING CO., LLC,
NORTH AMERICAN BREWERIES, INC.,
and KPS CAPITAL PARTNERS LP,
Plaintiff,

DECISION AND ORDER
10-CV-6100 CJS

-vBOSTON BEER CORPORATION,
Defendants.

APPEARANCES
For High Falls Brewing
Company, LLC:

For High Falls Operating
Co, LLC, North American
Breweries, Inc. and KPS
Capital Partners LP:

Jerauld E. Brydges, Esq.
Kimberly I. Shimomura, Esq.
Harter, Secrest and Emery, LLP
1600 Bausch & Lomb Place
Rochester, New York 14604-2711

Randall David White, Esq.
Terrence M. Connors, Esq.
Connors & Vilardo, LLP
1000 Liberty Building
424 Main Street
Buffalo, New York 14202
Gregory M. Boyle, Esq.
Erinn L. Wehrman, Esq.
Jenner & Block, LLP
353 North Clark Street
Chicago, Illinois 60654-3456

For Defendant:

George J. Skelly, Esq.
J. Christopher Allen, Esq.
Nixon Peabody LLP
1100 Clinton Square
Rochester, New York 14604

INTRODUCTION
This is a diversity action arising from a contractual dispute, in which Plaintiffs seek
permanent injunctive relief and a declaratory judgment that they are not required to
arbitrate certain aspects of the dispute. Defendant asserted four counterclaims: 1) tortious
interference with contract, 2) breach of the implied covenant of good faith and fair dealing;
3) “immediate possession or foreclosure”; and 4) conversion. High Falls Operating
Company (“OpCo”), KPS Capital Partners, LP (“KPS”), and North American Breweries, Inc.
(“NAB”) (collectively “Movants”) moved (Docket No. [#24]) to dismiss the first, third, and
fourth counterclaims, pursuant to Federal Rule of Civil Procedure (“FRCP”) 12(b)(6).
However, prior to oral argument of the motion, Defendant notified the Court that it was
withdrawing all of its counterclaims, except the first. Subsequently, the parties executed
a stipulation, agreeing to the dismissal of Defendant’s second, third, and fourth
counterclaims.

Consequently, Movants’ motion to dismiss the third and fourth

counterclaims is denied as moot. The remaining aspect of Movants’ motion, seeking
dismissal of the first counterclaim, is granted.
BACKGROUND
The following facts are taken from Defendant’s Corrected Answer [#20] with
counterclaims, and are viewed in the light most-favorable to Defendant. Defendant was
a party to a contract (“the Production Agreement”) with High Falls Brewing Company, LLC
(“HFBC”). Pursuant to the Production Agreement, HFBC was required to produce beer
and other beverages for Defendant, through the year 2014. In 2009, HFBC contracted to
sell substantially all of its assets to OpCo.1 OpCo is a subsidiary of KPS, a private equity

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According to Movants, “HFBC’s business was struggling, and OpCo was able to acquire its assets
at a favorable price.” Movants’ Mem o of Law [#24-5] at 8.

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fund. At that time, OpCo, KPS, and North American Breweries (“NAB”), were aware of the
Production Agreement between HFBC and Defendant, and were interested in assuming
HFBC’s interest in the agreement as part of the asset purchase. However, OpCo and
Defendant were not able to reach an agreement concerning assignment of the Production
Agreement.2 Consequently, OpCo purchased HFBC’s assets without assuming HFBC’s
obligations under the Production Agreement. OpCo apparently then began doing business
under NAB’s name. Defendant subsequently had discussions with OpCo concerning
whether OpCo would honor HFBC’s obligations under the Production Agreement. OpCo,
though, declined to assume such obligations. Subsequently, HFBC failed to fulfill its
obligations under the Production Agreement, since it no longer had the equipment or other
assets with which to carry out its obligations. Consequently, Defendant maintains that by
buying HFBC’s assets, OpCo, KPS, and NAB “intentionally and improperly procured the
breach by [HFBC[ of the Production Agreement.” Corrected Answer [#20] at p. 19, ¶ 51.
However, Movants maintain that such facts fail to state a claim for tortious
interference with contract. On June 18, 2010, Movants filed the subject motion to dismiss,
arguing that Defendant has not pleaded a plausible claim, since it has not alleged that
Movants’ actions were wrongful and without justification. Pls. Memo of Law [#24-5] at 6
(“Boston Beer’s claim for wrongful interference with contract . . . fails on its face because
Boston Beer does not allege the wrongfulness of and lack of justification for the
Companies’ actions that are required to maintain such a claim.”). More specifically,
Movants’ contend that a plausible claim must allege that they acted with “an intention to

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Defendant agrees that OpCo was interested in taking over HFBC’s rights under the Production
Agreem ent, but states that it did not agree to the assignm ent, since HFBC “intend[ed] to assign the Production
Agreem ent to [OpCo], but without any corresponding assum ption of [HFBC’s] obligations.” Answer and
Counterclaim s, Answer ¶ 20.

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harm plaintiff without economic or other lawful excuse or justification.” Id. (citations
omitted); see also, id. at 7 (“Boston Beer must allege facts sufficient to permit the court to
draw a reasonable inference that the Companies procured HFBC’s breach of contract (1)
with the intent to harm Boston Beer and (2) without justification.”). Movants argue that
Defendant’s counterclaim fails on this point, since it alleges only that OpCo’s purchase of
HFBC’s assets “had the indirect effect of leaving HFBC without the means to perform
under the Production Agreement.” Id. at 8.3

Movants further maintain that tortious

interference cannot be found where the defendant acted to protect a legitimate business
interest. Id.
In response, Defendant maintains, first, that an allegation of “malice” is not required
to state a claim for tortious interference with contract.4 Additionally, Defendant states that
Movants cannot establish the “economic self-interest” defense, since they did not have a
preexisting relationship with, or financial stake in, HFBC. Def. Memo of Law [#27] at 2.5
On April 14, 2011, counsel for the parties appeared before the undersigned for oral
argument.

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KPS and NAB contend that Defendant’s first counterclaim “does not allege a single fact” to show
that they com m itted tortious interference with contract. Instead, they m aintain that the only facts alleged
concern OpCo’s alleged com m ission of that tort.
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The Court agrees with Defendant. Although som e court decisions include language suggesting that
“m alice” is a necessary elem ent of a claim for tortious interference with contract, overall the New York cases
indicate that such is not the case. See, W hite Plains Coat & Apron Co., Inc. v. Cintas Corp., 8 N.Y.3d 422,
425, 835 N.Y.S.2d 530 (2007) (“Though long a part of our law, this com m only asserted tort continues to
generate a spate of decisions, with som etim es varying views.”).
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“[E]conom ic interest is a defense to an action for tortious interference with a contract unless there
is a showing of m alice or illegality.” Foster v. Churchill, 87 N.Y.2d 744, 750, 642 N.Y.S.2d 583, (1996).
However, the econom ic interest defense does not apply where the defendant had only “a generalized
econom ic interest in soliciting business for profit,” and “no previous econom ic relationship with the breaching
party.” W hite Plains Coat & Apron Co., Inc. v. Cintas Corp., 8 N.Y.3d 422, 425, 835 N.Y.S.2d 530 (2007).

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DISCUSSION
The applicable legal standard for determining whether a complaint is sufficient to
survive a Rule 12(b)(6) motion is clear:
Federal Rule of Civil Procedure 8(a)(2) requires only a short and plain
statement of the claim showing that the pleader is entitled to relief, in order
to give the defendant fair notice of what the claim is and the grounds upon
which it rests. While a complaint attacked by a Rule 12(b)(6) motion to
dismiss does not need detailed factual allegations, a plaintiff's obligation to
provide the grounds of his entitlement to relief requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action
will not do. Factual allegations must be enough to raise a right to relief
above the speculative level, on the assumption that all the allegations in the
complaint are true (even if doubtful in fact).
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1964-65 (2007); see also,
ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (“To
survive dismissal, the plaintiff must provide the grounds upon which his claim rests through
factual allegations sufficient ‘to raise a right to relief above the speculative level.’") (quoting
Bell Atl. Corp. v. Twombly) (footnote omitted); Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir.
2007) (Indicating that Bell Atl. Corp. v. Twombly adopted “a flexible ‘plausibility standard,’
which obliges a pleader to amplify a claim with some factual allegations in those contexts
where such amplification is needed to render the claim plausible[,]” as opposed to merely
conceivable.), reversed on other grounds, Ashcroft v. Iqbal, 129 S.Ct.1937 (2009). When
applying this standard, a district court must accept the allegations contained in the
complaint as true and draw all reasonable inferences in favor of the nonmoving party.
Burnette v. Carothers, 192 F.3d 52, 56 (2d Cir. 1999). Moreover, “[c]omplaints need not
anticipate, and attempt to plead around, potential affirmative defenses.” Davis v. Indiana
State Police, 541 F.3d 760, 763 (7th Cir. 2008) (citations omitted).

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Defendant is asserting a counterclaim for tortious interference with contract under
New York law. In sum, Defendant alleges that OpCo, NAB, and KPS committed the tort
by purchasing HFBC’s assets, knowing that such purchase would prevent HFBC from
performing its contract with Boston Beer. See, e.g., Answer and Counterclaims,
Counterclaims ¶ 26 (“OpCo, NAB and KPS wrongfully interfered with the advantageous
Production Agreement by stripping [HFBC] of substantially all of its operating assets,
thereby rendering [HFBC] unable to perform its obligations under the Production
Agreement.”).
Under New York law, “[t]ortious interference with contract requires the existence of
a valid contract between the plaintiff and a third party, defendant's knowledge of that
contract, defendant's intentional procurement of the third-party's breach of the contract
without justification, actual breach of the contract, and damages resulting therefrom.” Lama
Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 424, 646 N.Y.S.2d 76, 82 (1996)
(citations omitted). Here, for purposes of this motion, it is undisputed that a contract
existed between Defendant and HFBC, that Movants were aware of the contract, that the
contract was breached, and that Defendant sustained damages. Consequently, the only
issue is whether Defendant has sufficiently pleaded that Movants intentionally and
improperly procured the breach.
“[W]here there is an existing, enforceable contract and a defendant's deliberate
interference results in a breach of that contract, a plaintiff may recover damages for
tortious interference with contractual relations even if the defendant was engaged in lawful
behavior.” NBT Bancorp Inc. v. Fleet/Norstar Financial Group, Inc., 87 N.Y.2d 614, 621
(1996) (citations omitted). According to the pertinent section of the Restatement (Second)

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of Torts, deliberate or intentional interference may be shown where the defendant is
certain, or substantially certain, that his actions will result in a breach of the contract:
Intent and purpose. The rule stated in this Section is applicable if the actor
acts for the primary purpose of interfering with the performance of the
contract, and also if he desires to interfere, even though he acts for some
other purpose in addition. The rule is broader, however, in its application
than to cases in which the defendant has acted with this purpose or desire.
It applies also to intentional interference, as that term is defined in § 8A,6 in
which the actor does not act for the purpose of interfering with the contract
or desire it but knows that the interference is certain or substantially certain
to occur as a result of his action. The rule applies, in other words, to an
interference that is incidental to the actor’s independent purpose and desire
but known to him to be a necessary consequence of his action.
Restatement (Second) of Torts § 766, comment j (1979); see also, Union Carbide Corp.
v. Montell N.V., 944 F.Supp. 1119, 1137 (S.D.N.Y. 1996) (Denying 12(b)(6) motion, where
allegations in pleading “provide[d] ample support for the inference that [defendant] either
knew that its actions were certain or substantially certain to induce a breach . . . or acted
with the primary purpose of inducing a breach.”); @Wireless Enterprises, Inc. v. AI
Consulting, LLC, No. 05–CV–6176 CJS(P), 2011 WL 1871214 at *11 (W.D.N.Y. May 16,
2011) (“A defendant intentionally procures a breach when he ‘knows of a valid ... contract’
and ‘commits an intentional act whose probable and foreseeable outcome is that one party
will breach the contract, causing the other party damage.’”) (quoting Leventhal v. Franzus
Co., Inc., No. 88 CIV. 3547(MBM), 1988 WL 132868 at *7 (S.D.N.Y. Dec. 6, 1988)).
On the other hand, a party does not induce or procure a breach of contract when
he “merely enters into an agreement with the other with knowledge that the other cannot
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“The word ’intent’ is used throughout the Restatem ent of this Subject to denote that the actor desires
to cause consequences of his act, or that he believes that the consequences are substantially certain to result
from it.” Restatem ent 2d Torts § 8A (1979); see also, id., com m ent b (“If the actor knows that the
consequences are certain, or substantially certain, to result from his act, and still goes ahead, he is treated
by the law as if he had in fact desired to produce the result.”).

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perform both it and his contract with the third person.” Restatement (Second) of Torts §
766, Comment n (1979). On this point, the Restatement says:
n. Making agreement with knowledge of the breach. One does not induce
another to commit a breach of contract with a third person under the rule
stated in this Section when he merely enters into an agreement with the
other with knowledge that the other cannot perform both it and his contract
with the third person. . . . For instance, B is under contract to sell certain
goods to C. He offers to sell them to A, who knows of the contract. A
accepts the offer and receives the goods. A has not induced the breach and
is not subject to liability under the rule stated in this Secstion.
Id.
In this case, Movants allegedly committed the tort of tortious interference with
contract by purchasing HFBC’s assets, which resulted in HFBC breaching the Production
Agreement with Defendant. However, it is clear from the Defendant’s Answer and
Counterclaims that OpCo’s purpose in purchasing HFBC’s assets was not to cause such
breach. Instead, OpCo’s purpose was to purchase HFBC’s assets and operate a brewing
company. In that regard, OpCo expressed an interest in assuming HFBC’s rights under
the Production Agreement, but OpCo and Defendant could not agree on terms. In the
Court’s view, such facts fit squarely under the situation described in Comment n to
Restatement (Second) § 766, set forth above. In other words, OpCo merely purchased
HFBC’s assets, but not its obligations under the Production Agreement, knowing that
HFBC would not be able to perform the production agreement after it sold its assets to
OpCo. On very similar facts, another District Court in this Circuit recently granted summary
judgment on a claim for tortious interference with contract. See, Planet Payment, Inc. v.
Nova Information Sys., Inc., No. 07-cv-2520 (CBA) (RML), 2011 WL 1636921 at *10-13
(Mar. 31, 2011) (Defendant was not liable for tortious interference with contract, where

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defendant purchased a corporation’s assets, but did not assume the corporation’s
agreement with a third party, and the corporation consequently was unable to perform its
obligations under the agreement with the third party).7 Similarly, in this case the Court
finds, as a matter of law, that Defendant has not pleaded a plausible claim for tortious
interference with contract, since, at most, Movants entered a contract with HFBC, while
knowing that HFBC could not perform both its contract with Movants and its contract with
Defendant.
If the Court were to find that Defendant had sufficiently stated a claim for tortious
interference, it would essentially mean that anytime a party purchased a company’s assets
without assuming the company’s outstanding contractual liabilities, the party would be
liable for tortious interference with contract to any third-parties whose agreements with the
company were subsequently breached. Such a holding would be inconsistent with the law
in the state of New York. See, Planet Payment, Inc. v. Nova Information Sys., Inc., 2011
WL 1636921 at *12 (“Generally, a party cannot be held liable for tortious interference for
refusing to assume a contract.”) (citing Highland Capital Mgt. LP. v. Schneider, 198 Fed.
Appx. 41, 46 (2d Cir. 2006), other citation omitted); see also, Beecher v. Feldstein, 8
A.D.3d 597, 598, 780 N.Y.S.2d 153, 154 (2d Dept. 2004) (Defendant did not procure
breach of lease between car dealership and dealership’s patron, where Defendant
purchased dealership but did not assume balance of auto lease, and relocated dealership.
As the court held, the “defendant’s actions did not procure and were merely incidental to
the dealership’s breach of the lease.”).

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In addition to buying substantially all of the corporation’s assets, the defendant in Planet Payment
also required the corporation to sign a non-com petition agreem ent, which further assured that the corporation
would not be able to perform its obligations to the third party. See, id. at *3.

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CONCLUSION
Defendant’s second, third, and fourth counterclaims have been withdrawn by
stipulation of the parties, and the application [#24]) to dismiss Defendant’s third and fourth
counterclaims is therefore denied as moot. The application [#24] to dismiss Defendant’s
First Counterclaim is granted.
SO ORDERED.
Dated:

August 2, 2011
Rochester, New York

/s/ Charles J. Siragusa
CHARLES J. SIRAGUSA
United States District Judge

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